Business context and reporting period
Gevo, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2022. The company is developing renewable fuels, principally sustainable aviation fuel (SAF), and operates a renewable natural gas (RNG) project in Northwest Iowa. The Luverne, Minnesota facility was moved to care and maintenance as Gevo shifted resources toward its Net-Zero projects.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.3 | $0.1 | $0.6 | $0.5 |
| Gross loss | $(3.6) | $(3.4) | $(10.4) | $(7.8) |
| Operating loss | $(43.7) | $(14.7) | $(75.7) | $(43.8) |
| Net loss | $(43.8) | $(14.4) | $(72.6) | $(42.7) |
| Net loss per share | $(0.19) | $(0.07) | $(0.34) | $(0.22) |
| Cash used in operating activities | Not presented quarterly | Not presented quarterly | $(36.8) | $(28.7) |
| Capital expenditures (PPE acquisitions) | Not presented quarterly | Not presented quarterly | $68.5 | $31.0 |
- At September 30, cash and cash equivalents were $200.6 million, current marketable securities $222.0 million, and restricted cash $77.9 million. The company reported net working capital of $414.1 million and current liabilities of $17.6 million.
- Total liabilities were $104.5 million. The 2021 bonds had a carrying value of $67.0 million; other loans were approximately $0.4 million. Finance and operating lease liabilities totaled approximately $20.6 million.
- Cash, cash equivalents and restricted cash increased by $142.4 million during the first nine months. Financing provided $134.3 million net cash, principally from the June equity offering; investing provided $44.9 million, reflecting marketable-security maturities and sales, partly offset by purchases and project spending.
- No positive operating margin was reported: Q3 revenue was $0.3 million against a $3.6 million gross loss. The filing does not provide a meaningful positive margin measure.
Material changes versus comparable periods
- Q3 revenue rose to $0.3 million, primarily from RNG commodity sales, while Luverne production activity was minimized. RNG sales were 41,791 MMBtu during the quarter. Environmental-attribute revenue had not yet been recognized, principally because of approval and documentation timing.
- Net loss increased by $29.4 million year over year in Q3. A $24.7 million impairment charge related to Luverne assets was the largest unusual item; excluding that charge, management said operating loss still increased, mainly from greater Net-Zero and Verity activity and non-capitalizable NZ1 costs.
- For the first nine months, net loss increased by $29.9 million. SG&A rose $11.3 million, while preliminary-stage project costs fell $6.8 million, partly because project costs began being capitalized in 2021. The 2022 period also included $2.3 million of idle-facility costs.
- In June, Gevo raised $139.2 million net through an offering of 33.3 million shares and 33.3 million warrants. The warrants had a $4.37 exercise price and five-year term; none had been exercised by September 30. Common shares outstanding were 237.2 million at September 30 and November 7.
Outlook, risks and unusual items
- NZ1 in South Dakota is designed for approximately 62 million gallons per year of hydrocarbons, including 55 million gallons of SAF. Gevo said initial SAF deliveries were expected in 2025. The current installed-cost forecast was approximately $850 million, excluding certain contingencies and financing costs; the company expected to spend $100–$120 million on NZ1 within the next 12 months and allocated approximately $25 million for development of its next Net-Zero project over the following four to six months.
- Management said available cash, cash equivalents, restricted cash and marketable securities should enable it to meet obligations and potential cash requirements for the next 12 months. It is arranging NZ1 financing expected to combine debt and equity, but stated there is no assurance of raising additional funds or achieving profitability or positive operating cash flow.
- Gevo cited more than 375 million gallons per year of SAF and hydrocarbon supply agreements, while NZ1’s planned output is a portion of that volume. Verify that construction, financing, permits, supply agreements and delivery schedules remain achievable.
- The Iowa RNG project ramped production and pipeline injection in Q3. Gevo expected most environmental-attribute revenue to occur in 2023 because of LCFS approval and documentation timing. EPA registration had been obtained; LCFS approval was still expected.
- The USDA tentatively selected Gevo’s Climate-Smart Farm to Flight proposal for an award ceiling of up to $30 million, subject to definitive agreements. This was not a finalized award in the filing.
- Gevo disclosed April 2022 environmental discharges at two Iowa digesters and notices of violation; a possible DNR enforcement action and monetary sanction remained. The company did not expect any such sanction to materially affect its financial statements. A separate February discharge was resolved for $10,000. No material litigation or recorded environmental liability was reported.
- The $67.0 million 2021 bonds mature in 2042 but are subject to a mandatory tender date of April 1, 2024; if not called and remarketed, the trustee may draw on the letter of credit to repay them. Restricted cash includes $71.2 million collateralizing that letter of credit and $6.6 million supporting a power letter of credit for NZ1.
Important facts for investors to verify
- NZ1’s financing plan, final installed cost, construction milestones, and the basis for the expected 2025 deliveries.
- Whether the expected $100–$120 million of NZ1 spending and approximately $25 million for the next project are funded without additional capital raises.
- RNG operating performance, LCFS approval, environmental-credit monetization timing, and the expected contribution of those credits to revenue and margins.
- The status and terms of the 2024 bond tender or remarketing, and how much reported cash is restricted or otherwise committed.
- Potential dilution from the June 2022 warrants, future equity issuance, and the remaining capacity under the at-the-market offering program.
- Resolution of the April Iowa discharge notices, and whether any resulting costs or sanctions become material.